A loan is offered with monthly payments and a 10.50 percent APR. What’s the loan’s effective annual rate (EAR)? Solution EFFECTIVE ANNUAL RATE = (1 + NOMINAL RATE / N)N - 1 N = NUMBER OF PERIODS EAR = (1 + 0.105 / 12)12 - 1 = (1.00875)12 - 1 = 1.1102 - 1 = 0.1102 OR 11.02%.